Pierre Mallevays, managing partner of the London-based boutique advisory firm Savigny Partners LLP and former head of M&A; at LVMH, contrasts Asia’s has-been and will-be luxury leaders by exploring national confidence, individualistic tendencies and brand loyalty.

Over the last year or two a barrage of articles have been flooding publications all over the world about the state of the luxury goods market in Japan. In June this year, the Financial Times went as far as to declare, ‘Japanese fall out of love with luxury’. The conjecture vis-à-vis Japan’s ‘mysterious’ turn away from excessive consumer expenditure culminated with the recent news that Versace are to pull out of the country that was ‘once the world’s most reliable buyer of all things foreign and expensive’. LVMH also added fuel to the fire by announcing that they were calling a halt to their planned store opening in the country’s capital after having witnessed sales in the region drop by 20 percent in the first half of 2009. All eyes are now firmly fixed on China. Admittedly this is hardly a new and note-worthy topic; Savigny Partners investigated the downturn in luxury spending and change in consumer attitudes in Japan three years ago, at a time when China was starting to appear on the map for most luxury brands. Since then the road to China has become frenzied, and it seems appropriate to draw some parallels between the Japanese experience of a maturing market and the new darling of the luxury sector.

China’s little emperors are more individualistic than their Japanese counterparts

While individualism isn’t necessarily a concept that one automatically equates with the Chinese people – who have traditionally stood by the collectivist spirit promoted since the rise of communist rule, it now appears that the rapid pace of change within the country has also fostered a new generation that is empathically opposed to the ideas that their parents still hold so dear. The little emperor syndrome that was born out of the one-child policy can certainly be held, at least in part, accountable for this transformation in attitudes, with a generation of youth all believing that they hold a special place in the world. A KPMG survey in 2007 reported that on average over 60% of people used luxury goods as a demonstration of status and success compared to less than 20% who consumed them in order to fit in. This contrasts starkly with the more group-orientated Japanese culture where decisions are traditionally made by consensus, and one’s peer group is looked to for feedback and acceptance. With an urban population that are looking to express themselves as individuals it is possible that China’s spending patterns will change more quickly than they have done in Japan, to one similar to the ‘Prada Primark phenomenon’ that is commonplace in mature luxury markets where consumers are happy to mix and
match brands and price points.

Brand loyalty is in Japan’s DNA

Japan is a culture that is uniquely loyal; it is one of the few countries in the world where one expects to keep a job for life. This loyalty extends also to the brands that they buy into and is unlikely to be replicated in China, a country of people who are ethnologically very different in this regard: brand-hopping in their mission to seek out of the next product or collection. So, could it be that the cult of the LV bag, that is still to this day a compulsory item in Japan, will not have the same longevity in a China whose population is already proving to be less brand loyal? While Japan’s reliable devotion is almost certainly inimitable, the fact that 80% of Chinese luxury goods consumers fall under the age of 45 (a figure that contrasts
dramatically with the demographics of consumers in this sector throughout the Western world) does give brands hope that they will have the opportunity to shape consumers tastes and spending habits and to build loyalty.

In spite of the Chinese insatiable desire for the latest fashions, big luxury brands are currently having a ball in China catering to a hungry, unsophisticated customer base. The market will mature and this will not always be so. While enriching the client relationship with a view to create a sense of ownership and to foster customer loyalty is the conundrum luxury brands now have to solve everywhere, nowhere it is as important as in China, the Eldorado of luxury goods, where the stakes are so high and brand loyalty is, well… to be tested.

From cultural revolution to cultural promotion

The ‘tsunami of Westernisation’ in the decade-long build-up to the 2008 Olympic games certainly helped the campaign of luxury goods companies, bringing with it not only a new awareness and interest in Western culture as well as the inevitable desire to own anything logo-ified, but also Western style shopping malls. However, the Olympics were also an opportunity for the Chinese government to parade both to its own people as well as to the rest of the world not only what China had to offer, but that it had arrived and was here to stay. This resurgence in national spirit meant that the tide of westernisation has been somewhat curbed in favour of a rediscovery of Chinese culture. So in terms of national confidence China is in a completely different situation to that of post-war Japan, who emerged from the period of occupation inexorably linked to the United States and its cultural influences. Looking at the early collections of Japanese designers Issey Miyake, Kenzo and Yohji Yamamoto where much of their work imitated the work of Western designers, this lack of cultural confidence is evident. Furthermore as Chadha and Husband explain in their book The Cult of the Luxury Brand, none of these designers were to gain a following at home before they were accepted by the rest of the world. In contrast, the recent, well-publicised huge military parade on Tiananmen Square to celebrate sixty years of communist rule was certainly not short of self-confidence!

It has often been stated that luxury goods transcend the notion of cultural nationalism, and it is easy to perceive the current Chinese admiration for Western brands and specifically for brands that are successful on a world stage. However, the growing interest in their own culture might very well lead the Chinese consumer to look for something that is more uniquely Chinese, and in our view this will happen more quickly than it has in Japan, where a similar phenomenon is still relatively new.

The land of the rising brands

When we travelled to China at the end of 2006, we were surprised to find out that Chinese businessmen and entrepreneurs were actually more focused on developing Chinese brands than buying Western brands. This has the backing of central government, which is championing Chinese creativity and has invested heavily in fashion design education at university level. There is definitely a wind of sinicization in the luxury sector, much as it blew through the contemporary art market over the last few years. It is compelling that Christian Bédat, the Swiss entrepreneur and founder of the eponymous watch brand, chose to name his latest web-based watch venture Red8!

Chadha and Husband assert that ‘with the economic ascendancy of Asia… its cultural impact will increase too’, and indeed, the Chinese are extremely zealous about the export of their culture. The number of Chinese Studies courses and centres rapidly increasing year-on-year at universities around the world, and with an estimated five hundred schools in the UK offering Chinese as part of their curriculum to pupils aged eleven and upwards, the next generation of potential luxury consumers are already being immersed in the culture of the Middle Kingdom.

As Savigny Partners prepares to invite Ports Design Ltd into the SLI, we look forward with excitement to further developments in China, not just as a consumer of luxury goods but also as a growing influence over the luxury sector as a whole.

Pierre Mallevays, Managing Partner of Savigny Partners